Pensions part of social security
The aim of the Finnish social security system is to ensure basic security for everyone in all situations in life. Social security can be divided into social insurance and social and health services.
There is both statutory social insurance and supplementary allowances and assistant.
Social insurance refers to statutory measures taken to secure the livelihood of an individual through insurance. Social insurance are:
- statutory pension insurance,
- health insurance,
- workers’ compensation insurance, and
- unemployment insurance.
Some social insurance benefits are based on work, others on living in Finland. People who work have the right to certain benefits. Their levels depend on the earnings from work. Earnings-related pension and allowances are such benefits.
Earnings-related benefits are financed through contributions that are proportionate to the wage and, partly, to the insurance risk. The basic unemployment allowance is financed by the State.
Residence-based benefits are the national pension, the guarantee pension and minimum allowances that are independent of earnings. Under certain conditions, all Finnish residents are entitled to these benefits. The minimum security is financed mainly through tax funds and payments similar to taxes.
Social insurance is also supplemented by various allowances and assistance, paid out for various reasons. The income support is the last resort.
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The statutory pensions in Finland are the
- national pension,
- guarantee pension, and
- earnings-related pension.
The national pension and the guarantee pension are administered by the Social Insurance Institution of Finland (Kela). They cover the entire population.
The earnings-related pensions are administered by a number of earnings-related pension providers. They cover the entire workforce, including the self-employed.
Earnings-related pensions guarantee a reasonable consumption level for employees and self-employed persons also after retirement. The national pension and the guarantee pension provide a basic income security for all pensioners.
The earnings-related pension and the national pension have supplemented each other since the start of the earnings-related pension scheme. The amount of earnings-related pension a person gets affects the amount of national pension they get. If an individual gets a small or no earnings-related pension, they will get a full national pension. The amount of the national pension gradually decreases as the amount of the earnings-related pension grows.
The earnings-related pension has a 50% decreasing effect on the national pension and a 100% decreasing effect on the guarantee pension. Similarly, some earnings-related pensions, or parts of them, are not taken into account at all when calculating the national pension but in full when calculating the guarantee pension. The guarantee pension is granted only to pension recipients in the lowest income bracket.
Earnings-related pensions and the national pension are paid out based on criteria that depend on the life situation of the pension recipient. The old-age pension follows when working life ends due to old age, the disability pension provides an income when an illness or an injury prevents an individual from working, and the survivors’ pension provides coverage for family members when a wage earner in the family dies. The partial old-age pension allows an ageing wage earner to decrease their work contribution before retirement on a full old-age pension.
When an employee falls ill and is unable to continue working, the health insurance allowance covers initially part of the loss in earnings. Kela pays the allowance to employees aged 16 – 67 years after a qualifying period of nine weekdays. To get the allowance, the individual who has fallen ill must have been working for three months before the disability began. Pension accrues for short-term periods of illness.
As a rule, employees are paid the allowance based on the Sickness Insurance Act for 300 days of at the most. If the disability continues after that, they will get a temporary rehabilitation allowance from the pension schemes. If the disability is permanent, Kela and the pension providers pay out a disability pension or partial disability pension.
The pension recipient can get rehabilitation to improve or restore their work/earnings capacity from either the earnings-related pension scheme or the national pension scheme.
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As a rule, all employees are covered by the statutory workers’ compensation insurance.
Persons whose work is not covered by the statutory workers compensation insurance can be insured voluntarily or by taking out a workers’ compensation insurance for self-employed persons with one of the pension providers.
The workers’ compensation pension is paid out to the injured person after the health insurance allowance period ends. To qualify for this benefit,the insured individual must meet the following requirements:
- their ability to work has decreased by at least 10 per cent due to an accident or occupational disease, and
- their earnings from work have decreased as a result.
If a person is injured in a traffic accident rather than an accident at work, they get compensation for loss of income under the Motor Liability Insurance Act.
Compensation paid based on accident and motor liability insurance are primary. That means that the injured person is primarily paid compensation based on the accident and motor liability insurance and will get an earnings-related disability pension only if the earnings-related disability pension is bigger than the compensation for loss of income paid based on accident and motor liability insurance. New earnings-related pension accrues from short periods of accident and motor liability insurance compensation.
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The Employees’ Group Life Assurance is an insurance arrangement that the social partners have agreed on. When an employee dies, their family is paid a compensation from this insurance. The compensation is paid regardless of the cause of death.
In addition, the surviving spouse and the children are compensated from the earnings-related pension scheme. That compensation is based on the deceased employee’s own earned pension. Kela pays out survivors’ pension from the national pension scheme to supplement the employee’s earnings-related pension.
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An unemployed job applicant who lives in Finland and who has worked before has the right to get an unemployment allowance. The unemployment allowance is paid for 300, 400 or 500 days at the most, depending on the person’s age and work history. The basic allowance and the earnings-related unemployment allowance are paid under the same conditions.
To get the earnings-related unemployment allowance, the individual must be a member of the unemployment fund for a sufficiently long period. New earnings-related pension accrues for periods of earnings-related unemployment allowance.
The labour market support secures the income for unemployed individuals who live in Finland but who are not eligible for unemployment allowance because they have no work history. In other words, the labour market support is intended for unemployed individuals who are entering the labour market for the first time. It is also granted to unemployed persons who have got the unemployment allowance for the maximum period of time (500 days).
If a self-employed person has been a member of an unemployment fund for self-employed persons, they have the right to get the earnings-related unemployment allowance or training. Otherwise they will get the basic allowance paid by Kela.
A person who has turned 60 (persons born in 1955 or 1956) or 61 (persons born in 1957 or later) before the maximum number of unemployment allowance days (500) are up and whose work history spans at least 5 years in the last 20 years, has a right to additional days based on the Unemployment Security Act. The unemployment allowance is paid until they reach their retirement age or until they turn 65.
The self-employed have no right to get the additional days of the unemployment allowance. When the 500 days of the unemployment allowance are up, the self-employed may quality for the labour market support.
An unemployed person born before 1958 who has been granted additional days of the unemployment allowance is entitled to get the old-age pension at age 62, without a reduction for early retirement. In other words, such a person may choose between the unemployment benefit and the old-age pension.
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